The Political Economy of Military Spending in the United States

By Alex Mintz | Go to book overview

CHAPTER 7

Military Buildup, War Escalation, and Business Confidence: Wall Street’s Reactions to the Vietnam Conflict

Steve Chan

The Vietnam war was arguably the most traumatic and expensive foreign policy adventure (or, rather, misadventure) in the recent history of the US. It carried a heavy price tag in human, moral, political, and economic costs. The bills for these costs will continue to come due well into the next century. It has been estimated that the ultimate financial expense of this war for the US would be about $676 billion (Riddell 1973). Much of this estimated expense—such as in the form of future costs for veterans’ benefits and interest payments on the national debts—have yet to be borne by the American tax payers.

This chapter investigates the short-term effects of the Vietnam war on business confidence in the US. I use the stock market as a barometer of this confidence. The incremental costs of the war—that is, the additional costs incurred beyond the normal expenditures of maintaining a peacetime military—are not available for the monthly units of analysis employed in this chapter. Instead, indicators such as the number of US bombing missions and ground operations are used as independent variables that reflect both the costs and the intensity of the US war effort. My purpose is to determine whether escalations (or de-escalations) in this war effort had a bullish, bearish, or insignificant impact on Wall Street.


WHY THE STOCK MARKET?

The behavior of the stock market has been routinely used as a leading economic indicator by government as well as private forecasters. The stock

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